Infosys' non-linear plans

Mon, 15 Mar 11:30 am

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The Indian markets ventured deeper into the negative territory during the previous two hours of trade on account of profit booking activity across sectors. Currently, stocks from the realty, banking, capital goods and auto sectors are dragging the markets lower, while stocks from the FMCG, IT and telecom sectors are trading higher.

The BSE-Sensex and the NSE-Nifty are trading lower, shedding around 85 points and 25 points respectively. The BSE-Midcap and BSE-Smallcap are trading deep in red, lower by around 1.02% and 0.61% respectively. The rupee is trading at 45.58 to the dollar.

According to a leading business daily, state-owned energy major ONGC has earmarked a sum of US$ 20 bn to invest in foreign assets over the next 10 years. It may be noted that the company has already invested around US$ 10 bn across the globe with few of its large investments in Russia, Kazakhstan, Sudan and Nigeria. Sakhalin in Russia is the company's largest investment of US$ 5 bn. Encouraged by the satisfying returns earned by its foreign investments, the company plans to continue buying assets abroad.

ONGC believes that India's energy demand is slated to increase exponentially going forward. The company aims to aggressively plan for this future spurt in demand. India which inhabits about 17% of the world's population, possess only 0.5% of global hydrocarbon reserves. We believe this mandates oil & gas upstream companies to scout for foreign assets. During 3QFY10, ONGC's volumes declined as it faced difficulties in maintaining the levels of production from its ageing fields.

As per a leading business daily, Indian IT major Infosys, is going big on its IP (Intellectual Property) led growth plans. The company is collaborating with some of its clients for co-creating IT products and platforms in seven new growth areas which the company identified recently. Like its peers in the IT industry, the company has been growing by leaps and bounds in the past. However, this growth came from an ever increasing employee base. This new business model is critical for the company's non-linear growth strategy.

Through the non-linear model, the company will be able to reuse its IPs across clients after a pre-decided period of exclusivity. Moreover as the initial development expense will be shared, it will require lower investments. Infosys aims to generate around one-third of its revenues from the high-margin non-linear business model in the next 5 years. It may be noted that the company generates only 5% of its topline from such engagements as of now. Despite its dominance in the IT outsourcing space, it has only 4 patents to its credit with a little over 200 awaiting approval. We believe that this strategy of focusing on non-people intensive, IP-led growth will go a long way in aiding Infosys' future growth.